Chinks in the EU Clouds

The European Union, following two nasty referendum defeats in just three days, is undoubtedly facing a political crisis, says Edward Hadas on Breakingviews.com. But is it facing a financial one too?

Indeed, markets are slightly volatile at the moment. The euro, for example, shed 1% against the dollar following rumours that Germany's finance minister had been part of a conversation that condemned the currency as a "failure". The euro may have made up some ground since then, but the move still shows that the markets are not only "febrile"; they're also overreactingA euro-break up however is unlikely, particularly as it is one of the few EU initiatives that is actually popular. Only 30% of Dutch voters longed for the return of the guilder.

Moreover, despite the current crisis facing EU Commission President Jos Manuel Barroso, there are a number of "chinks in the clouds" which could lead to a sunnier scenario, says Lex in the FT. With German elections due this autumn, and following the "discrediting of the lame-duck French government", a more pro-reform core Europe could evolve. For one, this may lead to better relationships with the UK. And Italy's bulging debt could even force it out of the euro resulting in a "leaner, meaner EU, focused on trade rather than political and social integration".

At a push, this free-trade zone, focused more on competition and financial regulation, could easily make a place for Turkey, whose currencies have rebounded this week after being oversold before the referendums. Further commitment to Turkish accession would lead to even further strengthening.

Undoubtedly this scenario is unlikely to develop anytime soon; yet ignoring the "chinks in the clouds" comes at your own peril.